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Hot Investment Themes 2024: iShares Sets Sights on Harnessing Innovation and Opportunity

Last Updated January 4, 2024 10:30 AM
Giuseppe Ciccomascolo
Last Updated January 4, 2024 10:30 AM
Key Takeaways
  • Artificial intelligence (AI) will continue its rapid growth and become increasingly integrated into various industries.
  • iShares recommends focusing on companies that are developing AI-powered solutions for enterprise adoption, multi-modal advancements, and the burgeoning hardware sector.
  • Medical innovation, particularly in the areas of AI-powered healthcare and neuroscience, is poised for significant growth in 2024.
  • Investors may also benefit from deglobalization.

As investors look ahead to 2024 ETF provider iShares  is pointing to three key areas that will shape the investment landscape.

iShares’ thematic analysis identifies artificial intelligence (AI), medical innovation, and reimagined globalization as the three areas that investors should focus on in 2024. These themes reflect the changing dynamics of the global economy and the emergence of new technologies and trends that are poised to transform various industries.

Artificial Intelligence’s Quick Growth

In the ever-evolving realm of AI investments, predicting the prevailing theme is hardly a groundbreaking endeavor. However, the nuanced approach investors are poised to take in the upcoming year might just be the unexpected twist. The relentless pace of AI development means every technological leap gives rise to a fresh array of investment prospects. iShares doesn’t just anticipate a broader adoption of AI across diverse sectors. It also envisions a transition towards multi-modal AI – systems capable of deciphering and comprehending a wider spectrum of data types beyond mere text.

With the theme gaining traction in recent times, the low-hanging fruit has already been plucked. As the potency of AI intensifies, it becomes sensible to broaden one’s horizons beyond the conventional focus on graphics processing units (GPUs). Substantial gains may arrive for other hardware manufacturers. These include those producing central processing units (CPUs), application-specific integrated circuits (ASICs), power-management chips, high-performance solid-state drives (SSDs), and networking hardware.

The “Magnificent Seven”

The “Magnificent Seven” of 2023, boasting an impressive average return of 108%, outshone the NYSE FactSet Global Robotics And AI Index, which managed a modest 32%. Nevertheless, the gap presents an opportunity for investors to identify companies that exceed expectations or, at the very least, exhibit above-average potential at reasonable valuations. iShares remains vigilant about companies focusing on enterprise and product adoption, multi-modal advancements, and the burgeoning hardware sector. Remarkably, iShares contends that smaller and mid-sized companies may offer the most lucrative returns.

For those seeking diversification within the AI theme, Finimize  suggests looking at the BlackRock Future U.S. Themes ETF (ticker: BTHM; expense ratio: 0.6%), the iShares Robotics and Artificial Intelligence Multisector ETF (IRBO; 0.47%), the Global X Artificial Intelligence & Technology (AIQ; 0.68%), or the WisdomTree Artificial Intelligence UCITS ETF (WTAI; 0.4%) are viable options worth considering.

AI To Boost Medical Innovation

As the United States’ population gets older, a profound impact on healthcare systems is inevitable. The burgeoning number of individuals reaching 65 will redefine the healthcare landscape. This could present a golden opportunity for forward-thinking companies capable of revolutionizing care. Remarkably, the upcoming year will witness a record number of Americans crossing the threshold of 65.

iShares is firmly optimistic about the role of artificial intelligence in propelling healthcare advancements. It says areas like neuroscience, genomics, and the broader biotech arena are key. The integration of AI has already proven its ability to rapidly process vast amounts of healthcare data, encompassing clinical trials, brain maps, and genetic information, surpassing human capabilities. This accelerated analysis holds the promise of significantly reducing the time and costs incurred by biotech companies in bringing new drugs to market, potentially by 25-50%. Projections indicate that by 2025, generative AI techniques will help to discover over 30% of new drugs.

AI in healthcare
Source: World Economic Forum, “Scaling Smart Solutions with AI in Health: Unlocking Impact on High-Potential Use Cases,” June 2023. Research and definitions summarized by BlackRock.

The AI healthcare market was valued at $9 billion in 2022, with a projected annual growth rate of 40%. This means it could reach an impressive $188 billion by 2031. However, healthcare stocks, particularly those aligned with medical innovation, faced a lukewarm response in 2023 due to high-interest rates impacting their valuations. This apparent underappreciation creates a strategic opportunity for discerning investors.

Which ETFs To Look At

For investors eager to seize healthcare opportunities amid the evolving landscape of healthcare and AI convergence, a curated selection of ETFs needs consideration. These include:  iShares Healthcare Innovation UCITS ETF (HEAL; 0.4%), the iShares Neuroscience and Healthcare ETF (IBRN; 0.47%), the Fidelity Disruptive Medicine ETF (FMED, 0.5%), and the VanEck Genomics and Healthcare Innovators UCITS ETF (CURE; 0.35%). These ETFs serve as a gateway to potentially transformative investments. They offer exposure to the dynamic and rapidly evolving intersection of healthcare and artificial intelligence.

Opportunities Arise From Deglobalization

The once-cherished ideal of harmonious global collaboration has faced unprecedented challenges in recent years. It has been battered by the seismic disruptions of the COVID-19 pandemic, geopolitical flashpoints like the conflicts in Ukraine and Gaza, and ideological and environmental shifts that have deepened global divides. In response to these threats, governments and businesses worldwide are reassessing their reliance on external sources. They are seeking to fortify internal capabilities and cultivate partnerships with trusted allies.

This strategic recalibration has manifested in a significant shift of production towards higher-cost economies. As a result, the elevated production costs in these regions have rippled through the global economy. They have had an impact on the pricing of goods traditionally manufactured in low-cost factories, often found in Asia. While this dynamic presents challenges for established players, iShares identifies it as an opportunity for new entrants to seize the mantle of global economic leadership. The firm envisions a new era of economic diversification, where emerging markets and innovative companies across the globe will reshape the global landscape.

Histoy of globalization
Source: BlackRock Investment Institute and US Bureau of Economic Analysis, with data from Haver Analytics, November 2022. The chart represents globalization as the sum of world exports plus imports, divided by world GDP.

Investing Opportunities

Mexico, with its proximity to the United States, offers a compelling option for companies. The country has lower labor costs than its northern neighbour and a free-trade environment under the USMCA. Despite the recent shift of manufacturing jobs to the country, Mexican stocks remain surprisingly undervalued compared to historical averages. They trade at a discount to broader emerging markets.

India, the world’s fifth-largest economy, may become a manufacturing powerhouse and the third-largest economy globally by 2030. This potential has attracted investor interest, with over $2 billion flowing into Indian ETFs this year. Investing in emerging market (EM) assets requires a nuanced approach. People should recognize the diverse impact of global changes across the EM landscape.

A selective approach is essential for success, focusing on countries like India and Mexico that are well-positioned to benefit from shifting global dynamics. ETFs like the iShares MSCI India ETF (INDA; 0.64%), iShares MSCI Mexico ETF (EWW; 0.5%), and Lyxor MSCI Emerging Markets Ex China UCITS ETF (EMXC; 0.5%) offer a convenient way to capitalize on these opportunities.


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